What is Impact Investing and what does it mean?

There is lots of talk around the emergence and importance of impact investing, but what does this mean?  Does your company fit the criteria of an impact-driven company and what might that mean for potential investors?

All businesses make an impact of some sort or another - but an impact-driven business will look to achieve social or environmental goals as well as generating profit.  “Purposeful Capitalism” is where profit and purpose go hand in hand.  Profits are not sacrificed on the altar of purpose, but the positive and measurable impact that a company has on people, our planet and society is front and centre within the business strategy.

Beware of “greenwashing” however. 

It could be said that all companies could probably say that they do something that could fall into the category of impact, but just because you operate car sharing for your team to get to the office, doesn’t automatically make you an impact-driven business!  Similarly, and as a number of large corporates have found, merely announcing a future date to go carbon neutral won’t in itself put you at the top of an impact investor’s wish list.

So what do impact investors look like?

Unlike philanthropic endeavours, impact investors typically expect a return on their investment and increasingly believe that companies that positively impact people, the planet and society have the potential to create even better returns than those purely driven by profit and growth.  Impact investors believe that when a company’s impact is entwined with its commercial success, money will flow towards creating a better world for people and the planet.

Here are a few categories of impact investors and what they may be looking for:

Family Offices and the rise of “next-gen”

Generally recognised as more “patient capital”, this is an interesting time for family offices.  We are seeing a huge inter-generational transfer of wealth taking place all around the globe, and the next generation of family leaders are increasingly looking to diversify from the strategies of their parents.  That means that they are much more likely to seek more impact-focused investments than previously.  Family offices can be difficult to access, but check out some organisations which can help to make introductions to Family Offices at relevant events (sometimes for a cost) such as Home | Campden Wealth

Venture Capital

Impact has become an increasingly important element to the investment thesis of Venture Capital funds. This is partly because their own investors are demanding it, and also because they see the link between impact and the ability to connect with customers and the fact that impact allows their portfolio companies to stand out from the crowd. As a result, there are a growing number of “impact only” investors, often aligned to specific areas such as climate, health, etc.  Some well-known names include Home - We're Bethnal Green Ventures, Mustard Seed + Partners – High growth, global impact. and Home - Ascension and the number is growing rapidly.

Charity Venture Arms

A relatively new entrant to the market are charities, who are seeing impact investment as a way to not only support their broader aims and objectives, but also to give them new forms of future income streams to ensure that they remain relevant and forward thinking in a fast changing world.  These charities will look to invest in early stage companies that have missions that align with their own and solutions that will support the populations that the charities are set up to serve. Examples of charities moving into this space include Innovation Impact Investment Portfolio | Macmillan Cancer Support and Venture Studio from Crisis Grants | Crisis UK

If you’re a true impact-driven business, then the investment market is coming towards you.  More and more investors are seeing impact businesses or “tech for good” companies as more attractive in a world where stronger ethics can equate to higher profit.